Land of the First Boardwalk: Down Payment Assistance in New Jersey

New Jersey is one of the smallest states in the country, and it’s also the most densely populated, with 1,211 people per square mile as of 2018. Flanked by New York to the north, Philadelphia to the west and the sand and salt of the Atlantic Ocean (and the Jersey shore) to the east, New Jersey is a great place to live.

Unfortunately, a tight real estate market with little inventory can make it challenging to find a house that fits your budget. Plus, down payment and closing costs in New Jersey can set you back thousands of dollars. In fact, to get into an average-priced home in New Jersey with a 20% down payment, it’s possible you’ll need to cough up around $100,000.

Fortunately, there are a variety of programs in New Jersey that offer down payment assistance. That said, it can be challenging to know where to find the best program for you. Although you should always consult with your own real estate, legal and/or tax professionals to see what program you may be eligible for and the best option available to you, we’ve interviewed mortgage and real estate experts throughout the state and sifted through dozens of guides to shed some light on options that may be available and help you in your search.

Keep reading to learn about down payment assistance, how much you generally need to get into a house in New Jersey, the types of assistance that’s available in your area, and where to find it.

What is down payment assistance?

When you buy a home, you’ll typically be asked to make a down payment. The amount varies, but it is usually based on a percentage of the home’s purchase price. Some mortgage programs require no down payment but can have strict eligibility requirements.

First-time homebuyers may need a 20% down payment to avoid mortgage insurance (MI), which can sometimes be a difficult hurdle to clear. William Hagan, a New Jersey agent who typically sells homes more than 40% faster than the average agent in his area, warns that even a 20% down payment may not be enough to win a bidding war in the 2021 sales market.

“In today’s market, it’s not uncommon for sellers to get multiple offers, which can result in a bidding war,” he explains. “A large down payment helps, as a 5% to 10%, or even 20% down payment may not get you into a home — especially when down payments as high as 50% are becoming much more prevalent.”

How much do you need to buy a house in New Jersey?

The 2021 national story of low inventories and eager buyers have resulted in an average home price in New Jersey of $500,628 for the first quarter of 2021. That’s 24% more than the price of an average home in 2020.

Considering that in May 2021, the median single-family home price in the United States was $329,523, New Jersey real estate is a bit pricier than in many other areas of the country.

But the percentage that home prices have increased in New Jersey differs widely from one county to the next. In August 2021:

• Cumberland Country saw a 35.9% increase in the price of a home
• Sussex County home prices climbed 25.5%
• Morris County witnessed an increase of 12.3%
• The cost of a home in Cape May County increased a meager 6.4%.

Home prices can also be quite different in the city as compared to the suburbs or rural areas of the state.

What determines home prices?

In most housing markets (and New Jersey is no exception) it’s all about location, location, location. It stands to reason that If a home is close to amenities, the price will be higher than in areas further out of town.

In the same way, living rurally may be less expensive than living in a city. But that’s not always true.

“New Jersey is a suburb of two major cities — New York and Philadelphia — so it naturally makes for a more competitive market,”  Hagan says. “Neighborhood comps can also influence home prices, as can housing inventory, the size of the lot and square footage of the home, the home’s age and condition, interest rates, taxes, and the overall economy.”

To find local market information in each New Jersey county, check out the Fast Stats page on the New Jersey Realtors website. You’ll find up-to-date information on new listings, days on market, median sales prices, housing inventory, and more.

You might also want to look at the New Jersey Multiple Listing Service for information on Hudson, Bergen, Essex, and Passaic Counties.

Homeowners taxes

When buying a home in New Jersey, you’ll want to factor in the cost of taxes. The median property tax is $6,579 per year in New Jersey for a home valued at $348,300. To get an idea of what you might pay, property taxes average 1.89% of a property’s assessed fair market value across all of New Jersey.

Home maintenance and insurance

Because New Jersey can have harsh winters and hot and humid summers, you will also want to factor in home maintenance and insurance costs. Fixing deep driveway cracks or replacing a roof and windows can really add up!

Plus, if you buy a home in a flood zone, your insurance rates could rise between 5% and 18% per year or until the cost of your insurance is in line with the risk of a flood, according to the National Flood Insurance Program’s Risk Rating 2.0, managed by FEMA.

Types of down payment assistance available in New Jersey

Many people can make their monthly house payments, but it can be difficult to come up with the money for a down payment and closing costs to buy a new home in the first place. Because your down payment can be the difference maker between getting into the home of your dreams and losing a bid, taking advantage of down payment assistance often makes sense.

Hagan mentions that “although there are several good programs out there, not many people take advantage of them.” Then again, only certain homebuyers qualify in most instances. Many of the following programs are only available to potential homeowners who earn less than, or at least not appreciably more than, the median income level in their area, which varies from county to county.

Here’s what you need to know.

Grants and loans

Grants are basically free money — with no obligation to pay it back! By contrast, borrowers may be expected to repay down payment assistance loans, though often, they won’t have to repay any assistance until they either sell the house, refinance, or pay off the mortgage loan.

Forgivable loans are a bit of a hybrid: The borrower is expected to pay the loan back unless certain conditions are met, in which case, the loan is forgiven, and the borrower is off the hook.

To find down payment assistance programs in New Jersey, you can check out HUD’s New Jersey program finder, or take a look at the New Jersey Housing and Mortgage Finance Agency webpage.

American Dream Down Payment Assistance Act

Grants are available to use as a down payment for a single-family home in Edison, New Jersey. This program is offered to low- and middle-income families and uniformed employees, such as maintenance workers, teachers, firefighters and police officers. Often, borrowers can make as much as 120% of the median income for this area of New Jersey, which was $106,036 in 2019.

As a grant, any down payment assistance is not paid back. However, if you receive money as a loan, the money will need to be paid back when you sell your home.

First-time homebuyers assistance

Burlington County First Time Home Buyer Program (FTHP)

This program is available to first-time homebuyers in Burlington County to help with closing costs and down payment assistance. Eligible applicants can get a loan for $5,000 toward their down payment and up to $4,000 in closing cost assistance. Income limits for a family of two is $61,850. For a family of four, your income can be as much as $77,300.

If you stay in your home for more than six years, the money towards your closing costs is forgiven. The money you receive for your down payment is payable in full when you sell your home.

Camden First Time Home Buyers Program (FTHP)

First-time homebuyers can apply for a forgivable loan of up to $15,000 to assist with closing costs and down payment or principal reduction. It is a one-time loan, from which:

• A total of $5,000 can be applied toward closing costs;
• The remaining money must be applied toward your down payment; and
• If you live in the home for 10 years, the loan is eligible for forgiveness. If you sell within five years, full payment is due when you sell your home. If you sell between years 6 and 10, the amount you owe is reduced 20% each year until it’s fully forgiven at year 10.

To meet eligibility income requirements, a family of two can make $55,950 per year. The income for a family of four can be $69,900 or below.

The City of East Orange Home Buyers Purchase Program

This program currently provides assistance to low- or no-income home buyers in the form of deferred payments and low-interest loans. One of the contingencies to approval is that applicants must put 1.5% of the total mortgage toward their down payment. The full cost of the loan must be repaid.

Homebuyer’s household income must be equal to or less than 80% of the median income for the target area, which is based on the Housing and Urban Development (HUD) Section 8 low-income limits. That means that a family of two cannot earn an annual income higher than $63,950, and a family of four must have an income of $79,900 or less per year.

Gloucester County Home Buyers Program (HP)

The HP program in Gloucester County helps applicants with down payment and closing costs assistance. Any low- to moderate-income households can apply to this program.  Homeowners must make a minimum 3% personal financial investment to qualify for the program.

Full repayment must be made if the home is sold, transferred, refinanced, or the homeowner obtains a reverse mortgage within the first five years of ownership. If you sell during years six through nine, the balance drops off 20% each year. If you stay in the house more than nine years, you will owe 20% when you sell, refinance, or transfer the deed.

For 2021, to be eligible for down payment assistance, a family of two cannot earn more than $63,950, and a family of four must have an income of $79,900 or less per year.

Monmouth County First Time Home Buyers Program (FTHP)

This First-Time Homebuyers Program offers financial assistance to low- and moderate-income Monmouth County residents interested in purchasing a home. To qualify, your income cannot exceed $63,950 for a family of two or $79,900 or less per year for a family of four.

The First-Time Homebuyers Program is a deferred second mortgage loan, which means you won’t have to repay the loan until you sell the house or refinance the loan. Up to $10,000 goes toward a down payment, closing costs, or both.

Ocean County First Time Home Buyer Program (FTHP)

The purpose of this program is to assist first-time homebuyers with funds for closing costs and down payment assistance so they are able to achieve their dream of owning a home. The assistance is in the form of a deferred loan agreement of up to $15,000 which is forgiven after a period of six years.

Homebuyers must have a minimum of 3% of the sales price as a down payment,

but only 1% is required from the homebuyer. The remaining 2% can be from the First Time Home Buyer program or from gift funds. The program also has income requirements; the cutoff is $63,950 for a two-person household, or $79,900 for a household of four.

Vineland Strategic Neighborhood Assistance Program/Urban Coordinating Council Home Ownership Assistance Program (HOAP)

The HOAP program in Vineland offers homebuyers up to $2,500 in down payment assistance.

NJHMFA Down Payment Assistance Program (DPA) program

This state-wide program offers $10,000 in down payment and closing cost assistance to qualified first-time homebuyers purchasing a home in New Jersey. The DPA is an interest-free, five-year forgivable second loan with no monthly payment. (If you sell the house before the five years are up, you’ll have to pay it back.)

To participate, the DPA must be paired with an NJHMFA first mortgage loan obtained from a participating lender.

Income, credit score, and purchase price limits apply. The DPA transforms into a grant after five years, which doesn’t have to be paid back. You can find a list of participating lenders of the NJHMFA program.

Do you qualify for this program?  You must be a first-time homebuyer, also known as someone who has not owned a home within the previous three years. You must also purchase a home as your primary residence in New Jersey and meet income, purchase price, and credit score requirements.

Housing Partnership’s Down Payment Assistance program

If you purchase a home in Sussex, Morris, or Eastern Warren County in New Jersey, you may qualify for the Housing Partnership’s Down Payment Assistance program, a 0%-interest loan that must be repaid when you sell or refinance your home.

Do you qualify for this program? You must be a first-time homebuyer, complete homebuyer education class, and have a one-on-one counseling session. You must also submit an application prior to signing a home contract. You must secure a mortgage through one of the program’s member banks and have an income that does not exceed 115% of the HUD median income requirements.

Matched savings grants

Matched savings grants, also known as Individual Development Account (IDA) programs, are special savings accounts that match the savings deposited by the account holder. The amount of matching funds varies by program, as laid out by the Corporation for Enterprise Development (CFED).

These programs provide a dollar-for-dollar match, or more, depending on the program’s funding source and guidelines. However, some matched savings grant programs require you to only work with specific lenders. So, before combining your matched saving account grant with a down payment assistance program, make sure to read all of the program guidelines.

Conventional loan programs vs. government-backed loan programs

Fortunately, many programs are available to homebuyers in New Jersey that help with down payments and closing costs. Not everyone qualifies, and even if you don’t qualify, these low- and no-down payment loan programs are worth checking out.

United States Department of Agriculture (USDA) home loans

Designed to help homebuyers buy a home in the rural areas of New Jersey, the USDA home loan program, like FHA loans, is issued by local lenders but backed by the USDA. Loans come with low interest rates and low or no down payment.

The USDA does not require a set credit limit, but most lenders want to see a minimum score of 640 to qualify.

Veterans Administration loans

Many VA loans offer a 30-year fixed-rate mortgage loan, competitive interest rates, and generally require no down payment.

For qualifying first-time homebuyers or other residents of New Jersey who may struggle to get into a home because of the cash needed upfront as a down payment, a VA loan can help. Keep in mind, however, that you will need to pay the VA’s closing costs and funding fee.

Fannie Mae and Freddie Mac

Freddie Mac offers the Home Possible mortgage program, and Fannie Mae offers the HomeReady mortgage program. These programs make it possible to get a mortgage loan with as little as a 3% down payment.

Conventional loans

Down Payment Assistance for Conventional 97 Mortgage

The Conventional 97 Mortgage allows first-time homebuyers to qualify for loans up to $417,000 to $430,000 with only a 3% down payment. As a first-time homebuyer, you must not have owned a home within the past three years.

• The home must also be an owner-occupied single-unit home, which can include condos and townhomes.
• You can’t buy a second home or other investment property with this money.
• To receive a 30-year fixed loan through this program, you must pay mortgage insurance until you reach 20% equity in the home.

YourFirst Mortgage

The yourFirst Mortgage is for first-time home buyers and offers a low down payment mortgage option. The conventional loan offered by Wells Fargo allows for down payments as low as 3%.

The yourFirst Mortgage allows down payments from down payment assistance programs as well as gift funds for closing costs. Like the Conventional 97 Mortgage, the yourFirst Mortgage does require mortgage insurance until you reach 20% equity.

Who handles down payment assistance in New Jersey?

To help get you into a home in New Jersey, you might seek out down payment and closing costs assistance, which might include:

• Grants
• Zero-percent second mortgages
• Deferred loans that become due upon the sale of your home, home refinance, or when you pay off your first mortgage
• Loans that are forgiven in the form of a second mortgage, with 0% interest
• Mortgage Credit Certificates (MCCs)
• Gifts from family and friends

Various agencies in the “Garden State” offer down payment and closing cost assistance. As Hagan points out, “there are some counties in New Jersey that are more expensive than others. Beach homes sell at a premium and homes in the city are also expensive.  Spending a million dollars on a home in New Jersey is not uncommon. That’s why down payment assistance programs are so vital, especially for first-time homebuyers.”

To find a down payment assistance program that works for you, you might try contacting these state-wide agencies:

• The New Jersey Down Payment Assistance and Grant Locator
• Local housing authorities and non-profits
• State Housing and Finance Agencies (HFA) in New Jersey
• The New Jersey Department of Community Affairs (DCA) 
• New Jersey Housing and Mortgage Finance Agency

The 2022 budget proposal by Gov. Phil Murphy calls for an expansion of the New Jersey Housing and Mortgage Finance Agency’s (NJHMFA) Down Payment Assistance (DPA) program. The program would provide $10,000 in down payment assistance to 2,000 families, and offer first-time homebuyers competitive mortgage rates. These funds do not have to be repaid if the homeowner lives in the home for at least five years.

How do you qualify for down payment assistance?

Qualifying for down payment or closing costs assistance generally depends on the program and agency or lender. That being said, qualifying may include:

• Low- to middle-income requirements
• Credit score requirements
• You must be a first-time homebuyer
• May need to show income and debt-to-income ratio
• May need to buy in a specific location or county
• The property may not exceed a set maximum price

Other requirements may also include:

• Taking a homebuyer education course
• Your mortgage loan must be acquired from an approved lender
• Some programs are only available to certain public servants, military service people, teachers, firefighters, and police officers
• Mortgage insurance (MI)

What about closing costs?

Average closing costs in the U.S. run between 2% and 5% of the purchase price of the home. That means for a home in New Jersey listed for $400,000, the closing costs alone can be between $8,000 and $20,000.

Many programs that offer down payment assistance also offer help with closing costs. But not all of them! Grants in specific counties of New Jersey may have money available to qualified homebuyers to help with closing costs. The same is true with certain organizations or lenders.

One of the best places to start is with your real estate agent. They may know of agencies and organizations offering closing cost assistance.

How to find down payment assistance to buy a home

According to Hagan, most real estate transactions are performed with the help of an attorney in northern New Jersey. In southern New Jersey, most transactions are performed by title companies and lenders. This can make finding down payment and closing cost assistance a bit challenging. It does, however, give you a good place to start.

Because of a tight real estate market and often multiple offers on a home, coming up with the funds for a down payment and closing costs can be difficult for many people. But taking the time to find assistance can go a long way to getting you into a home. Just a few resources may include:

• Asking your real estate agent
• Doing a thorough internet search
• Asking your personal banking mortgage lender
• Inquiring with your employer
• Some municipalities offer down payment assistance; it’s worth it to check
• Checking a state-by-state guide
• Filling out the form on the New Jersey Down Payment and Grant Locator

Why working with a top agent is key

A top real estate agent in your area can help identify down payment assistance and closing cost programs you might not yet know about. They can also guide you along the homebuying path so you make an offer that is realistic for your budget.

A professional can also help you navigate the inspection and closing process and with any number of other needs. They may even be your best bet for locating a program or lender that can help you secure down payment assistance in the form of a loan or grant.

Ready to start your journey?  Reach out to a qualified real estate agent in your area today.

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